Twitter
Advertisement

Top NBFCs asked to appoint chief risk officers

The CRO shall not have any reporting relationship with the business verticals of the NBFC and shall not be given any business targets

Latest News
article-main
FacebookTwitterWhatsappLinkedin

Reserve Bank of India has asked all the non-banking finance companies (NBFCs) with asset size of more than Rs 50,000 crore to appoint a chief risk officer (CRO) to prevent financial frauds like the one at IL&FS.

There is a liquidity crunch in the debt market after IL&FS defaulted on its payments in September last year, making it difficult for companies to raise money.

RBI also asked the NBFCs to ensure the independence of their CROs. The CRO shall be a senior official in the hierarchy of an NBFC and shall have professional qualification/ experience in the area of risk management, it said.

"The CRO shall not have any reporting relationship with the business verticals of the NBFC and shall not be given any business targets. Further, there shall not be any 'dual hatting' i.e. the CRO shall not be given any other responsibility," RBI said.

Keki Mistry, vice chairman and chief executive officer, HDFC, said, "Setting up a risk officer is one more safeguard and helps in risk mitigation. We have various risk committees, internal and external committees, which is composed of external members."

To tide over the liquidity crisis, NBFCs want the sub-limit or the loan component within the working capital facility to be reinstated automatically upon maturity to ensure the continuation of the working capital facility. That is to pay only the interest. The principal can be paid off when the NBFC collects enough funds from its receivables. The NBFCs also want the securitisation guidelines to be amended to do away with the prescribed minimum holding period and minimum retention requirement. The sector wants a minimum holding period for loans with a maturity of 2-5 years to be reduced from six months to three months. All banks irrespective of their size have risk officers.

The government also accepted that the NBFC sector is in dire straits. "There is an imminent crisis in the NBFC sector. There is a credit squeeze, over-leveraging, excessive concentration and massive mismatch between assets and liabilities, coupled with some misadventures by some very large entities, which is a perfect recipe for disaster," Injeti Srinivas, corporate affairs secretary, had said.

With the increasing role of NBFCs in direct credit intermediation, there is a need for NBFCs to augment risk management practices," the central bank said on Thursday.

"Boards of NBFCs should strive to follow best practices in risk management. The CRO is required to function independently so as to ensure highest standards of risk management," RBI said.

A NEW WATCHDOG

  • The CRO shall not have any reporting relationship with the business verticals of the NBFC and shall not be given any business targets
     
  • Further, there shall not be any 'dual hatting' i.e. the CRO shall not be given any other responsibility
Find your daily dose of news & explainers in your WhatsApp. Stay updated, Stay informed-  Follow DNA on WhatsApp.
Advertisement

Live tv

Advertisement
Advertisement